Peter
Van Name Esser and Michael S. Zola for
petitioner/cross-appellee

RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON,
JJ.

OPINION

McKENNA, J.

I.
Introduction

This
case arises from an appeal and cross-appeal from monetary
decisions in a Divorce Decree. David Hamilton
("Husband") and Dorinda Hamilton ("Wife")
seek review of the Intermediate Court of Appeals'
("ICA") September 25, 2014 Judgment on Appeal,
filed pursuant to its August 29, 2014 Memorandum Opinion. The
ICA affirmed in part and vacated in part the June 7, 2013
Divorce Decree of the Family Court of the Third Circuit
("family court").[1]

The
parties dispute the impact of a multi-million dollar
inheritance received by Husband on the family court's
determinations of property division, alimony, and
attorney's fees and costs. With respect to property
division, the family court found that a premarital economic
partnership existed and implied that proceeds from an illegal
marijuana operation may have constituted a portion of the
marital real estate. In ultimately dividing and distributing
the property, the family court awarded all inheritance funds
remaining at trial to Husband as his marital separate
property. It credited Husband for all sums withdrawn from his
inheritance funds as a capital contribution to the marital
estate. It then deducted these sums from the marital estate,
thereby creating marital debt. That marital debt was then
equally split between the parties, resulting in Wife owing
Husband a substantial equalization payment. The family court
then found that equitable considerations justified a
deviation from marital partnership principles and credited
Wife with an amount equal to her equalization payment. The
family court awarded Wife spousal support during the pendency
of the divorce proceedings and until December 2016, and the
court also awarded her attorney's fees and costs.

On
appeal, the ICA ruled that the family court's premarital
economic partnership finding was erroneous because it was
based in part on an illegal business enterprise. The ICA
vacated and remanded the portions of the Divorce Decree
pertaining to property division and spousal support to the
family court for recalculation after segregating proceeds
from the illegal marijuana operation.

We hold
that, under the circumstances of this case, the ICA erred in
vacating the property division and alimony awards to require
a recalculation of these awards based on a segregation of
proceeds from the illegal marijuana operation. We also hold
that the family court erred, either by characterizing the
entire $1, 511, 477 expended from Husband's inheritance
account as Marital Partnership Property or by characterizing
the $2, 051, 293 remaining in his inheritance account as
Marital Separate Property, because the $1, 511, 447 expended
included payment of inheritance taxes on Husband's entire
inheritance, and if inheritance taxes are paid out of Marital
Partnership Property, the remaining inheritance cannot be
classified as Marital Separate Property. We further hold that
the family court erred in summarily ruling before trial that
all funds expended by Husband from his Marital Separate
Property inheritance account constituted Category 3 Marital
Partnership Property for which he was entitled to be repaid,
without requiring Husband to fulfill his burden of
establishing that such expenditures were in the nature of a
contribution to or an investment in Marital Partnership
Property, and then compounded the error by failing to allow
and consider evidence of donative intent. We also hold that
the family court erred in ordering an equal distribution of
alleged partnership capital losses before deciding whether
equitable considerations justified deviation from an equal
distribution. Finally, we hold that the family court
improperly applied marital partnership principles to fashion
a property division award that was not just and equitable. We
find no error in the award of attorney's fees and costs.

We
therefore affirm in part the ICA's Judgment on Appeal to
the extent that it vacated the property division and alimony
awards and remanded the case to the family court, but vacate
the portion of the ICA's Judgment on Appeal directing the
family court on remand to segregate the proceeds of the
alleged marijuana operation from the property division. We
remand the case to the family court for further proceedings
consistent with this opinion.

II. Background

Husband
and Wife were married on June 21, 1985 ("date of
marriage") and separated in June 2010. The couple has
two adult children.

The
parties met in early 1976 in New Zealand and began living
together there soon after that. At the time, Wife had just
finished her final semester at the University of Hawai'i
at Hilo, while Husband worked on repairing a home and a
forest restoration project. Approximately four or five months
later, the parties moved to Massachusetts, where they lived
and worked on Husband's family's farm and store for
about three months.

After
leaving Massachusetts, the parties moved to the island of
Hawai'i ("Big Island") in November 1976, where
Husband began working on a county road crew. While on the Big
Island, the parties apparently started an illegal marijuana
operation. Wife testified that she was involved in the
processing and transportation of the marijuana. Husband
testified that the parties did not have a joint or mutual
marijuana operation. He indicated it was a sideline with a
few friends that continued until his son was born in 1987.

At
trial, the parties disputed whether marijuana proceeds were
used to purchase real property. Wife testified that marijuana
proceeds were used to purchase multiple properties prior to
the date of marriage, as well as one additional property
after the date of marriage, while Husband denied that
allegation. On one of the properties, purchased in 1978 and
titled in Husband's name, the parties jointly constructed
a two-story house.

In
1990, five years after the date of marriage, Husband obtained
his real estate brokerage license. In 2003, he opened his own
real estate firm. Husband testified that his income declined
in 2006 due to a falling market and his father's passing.
After Wife's 2010 divorce filing, Husband reported his
gross monthly income as $1, 000.

Wife
performed part-time work or was a housewife not employed
outside the home for much of the parties' relationship.
From approximately 1996 to 2009, Wife worked part-time at her
children's schools to obtain tuition assistance and
health insurance. She also sold hand-painted clothing. As of
the date of final separation in contemplation of divorce
("date of final separation"), she was collecting
unemployment benefits. At the date of conclusion of the
evidentiary portion of trial ("conclusion of
trial"), [2] she earned approximately $1, 500 per month
as a nanny.

Between
2007 and 2011, Husband inherited amounts totaling $3, 550,
770 from his parents' estates. He deposited the monies
into his separate Bank of Hawai'i account
("inheritance account"). At the conclusion of
trial, the inheritance account had $2, 051, 293 remaining.

Prior
to marriage, the parties filed no joint tax returns.

A.
Family Court Proceedings

1.
Pre-Trial Proceedings

On June
23, 2010, Wife filed a Complaint for Divorce. She then filed
a motion for temporary relief, seeking, in part, temporary
spousal support. In granting this request, the family court
made the following finding:

Husband has historically used his existing inheritance funds
for payment of the marital expenses and Wife's support.
Having reviewed Wife's Income and Expense statement
filed, the [family court] finds that it would be just and
equitable to order that in addition to the above support
orders, Husband shall pay to Wife $2000 per month in
temporary spousal support beginning October 1, 2010.

Wife
later moved for an advance of attorney's fees, indicating
a gross monthly income of $2, 080. Wife contended that an
advance for fees was necessary because Husband had filed
multiple pretrial motions for partial summary judgment. The
family court granted the request for attorney's fees
without prejudice to additional subsequent requests from Wife
for good cause shown, and ordered Husband to advance $25, 000
to Wife's counsel.

One of
Husband's pretrial motions for partial summary judgment,
entitled "Husband's Motion for Partial Summary
Judgment to Strike the Defense and/or Argument that Husband
Wasted his Category 3 Assets by Spending Money on Items Not
Related to the Marriage or the Children" ("Category
3 motion for partial summary judgment"), asserted that
Wife could not provide admissible evidence to establish that
he "wasted" Category 3 assets.[3] In a declaration in
support of the motion, Husband asserted:

In response to Plaintiff's Request for Answers to
Interrogatories and for Production of Documents and Things,
request number 9, I itemized all of the disbursements I made
from my inheritance money with the exception of $88,
597.80, which was disbursed for the marriage and
children's expenses. This amount was not itemized in
Defendant's response to Plaintiff's interrogatory
number 9, either because it consisted of small dollar
transactions too numerous to breakdown [sic], e.g.[sic] $70
to KTA, etc [sic], or the credit card amounts were too
difficult to itemize the family or children expenses [sic]
without additional extensive effort, i.e.[sic] recreating the
complete accounting.

Although
Husband's motion summarily asserted that all sums
expended were for marital and children's expenses, his
response to interrogatory number 9 included amounts such as
$111, 885.00 to the Commonwealth of Massachusetts Taxes and
$326, 540.00 to the United States Treasury. In addition,
Husband's heading for his interrogatory 9 itemization of
alleged Category 3 disbursements included the following
characterization: "Category 3 Inheritance Account."
After this heading, he included the inheritance tax payments.

Wife
objected to the motion based on Husband's failure to
establish prima facie entitlement to a grant of the motion
and due to the existence of genuine issues of material facts
as to whether all sums were expended for marital purposes.
The family court nevertheless granted this motion,
ruling[4] that "[Husband] spent his
Category 3 assets for marital purposes[] [for] which he is
entitled to be repaid."

2.
Trial Order and Divorce Decree

After
trial, on February 13, 2013, the family court entered its
Order Re: Divorce Trial Held on December 22 and 23, 2011. The
family court found that the parties had formed a premarital
economic partnership in 1976 that lasted until they married
in 1985:

9. The parties met in New Zealand in 1976. They began living
together soon after they met. They continued to cohabitate
uninterrupted until DOM.

10. The parties financially supported each other during their
cohabitation before DOM.

11. They resided and worked together in New Zealand,
Massachusetts, and Hawaii prior to DOM.

12. Husband worked at various jobs while Wife contributed her
services to their living arrangement. Wife did, however, work
on Husband's parents' farm and store in
Massachusetts, which contributed to the parties' living
expenses and support.

13. After moving to Hawaii and prior to DOM, Husband worked
for the County of Hawaii. The parties received food stamps
and Husband received a stipend from the State of Hawaii. Wife
was not employed, but contributed to the parties' living
support.

14. In 1977, the parties started growing marijuana and both
worked on growing, processing, transporting the finished
product, and selling it.

15. In 1978, the parties jointly purchased property for $17,
000. The parties jointly built a two-story house on that
property.

16. During 1977 and 1978 the parties travelled together to
Thailand to look for orchids to establish an orchid company
with other business partners. They purchased orchids and
shipped them back to Hawaii.

17. The parties also bought and sold other real property
prior to DOM from the proceeds of their joint earnings.

From
2007 to 2011, Husband inherited from his parents' estates
amounts totaling $3, 550, 770, and he deposited these funds
into his separate inheritance account. As of the conclusion
of trial, $2, 051, 293 remained in Husband's inheritance
account. The family court found that the parties had no
written premarital or post-marital
agreement, and categorized this sum as
Husband's Marital Separate Property, finding:

24. Husband expressly classified his inherited funds as his
separate property by depositing them into the Bank of Hawaii
and labeled it "separate." This account was created
solely for the purpose of holding and maintaining
Husband's inheritance. No funds from any other source
were deposited into this account and this account was
maintained by itself and was funded only by interest earned.

The
family court also found that the entire $1, 499, 477
withdrawn by Husband had been used "to invest in a
business that eventually failed and has no present value, for
the purchase of the Kala Cottage office, automobiles, and
other assets, to fund the Vanguard account in the amount of
$50, 000, to pay taxes, to pay for the private school and
post-high school education of the parties' children, and
to support and maintain the family and the family's
lifestyle." Consistent with its pretrial summary
judgment ruling, the family court then found that the entire
amount was a Category 3 capital contribution credit. With an
additional $12, 000 for a 2009 cash gift from Husband's
mother to him that had apparently been spent, the family
court found that Husband's Category 3 credits totaled $1,
511, 477.

As
noted earlier, the family court had already ruled before
trial that Husband was entitled to be repaid all of his
Category 3 expenditures as having been used for marital
purposes. After trial, the family court found that
"[that] Wife did not meet her burden that Husband
specifically intended these funds as a gift to her.

By the
conclusion of trial, the value of the parties' assets was
$466, 522. Because of its finding of $1, 511, 477 in Category
3 expenditures by Husband, the family court found a marital
estate valued at negative $1, 044.955, for which Wife would
otherwise have to repay Husband $522, 478 as an equalization
payment. For property division, Wife was awarded $1, 396 in
bank accounts, a retirement account worth $13, 000, and a
used Suzuki valued at $13, 000. Wife's equalization
payment increased by half of those amounts, to a total of
$549, 873.

In
addition to retaining the $2, 051, 293 remaining in his
inheritance account, for property division, Husband was
awarded $57, 835 in liquid cash accounts, a $8, 645 IRA
account, a $32, 865 Chevy Camaro, a $1, 000 Jeep Cherokee,
the marital residence with equity of $243, 781, and his
office cottage then valued at $95, 000.

With
respect to the marital residence and the office cottage
awarded to Husband, the family court found that in 2007,
Husband had purchased it for $180, 000 with inheritance
funds. Prior to its purchase, Wife had co-signed a $250, 000
equity loan secured by the marital residence so that Husband
could purchase the cottage for his real estate business. The
equity loan was supposed to be paid off from the anticipated
inheritance, and Wife testified she would not have agreed to
co-sign the home equity loan if she had known that Husband
was not going to pay off the equity loan with his
inheritance.

Both
parties were awarded their respective personal and household
property.

Because
of the significant equalization payment that would otherwise
be owed by Wife to Husband, the family court then determined
that sufficient "valid and relevant considerations"
[5]
existed to justify an equitable deviation from marital
partnership principles. It ruled that giving Wife a credit
equal to her equalization payment would be just and
equitable. In support of this deviation, the family court
considered the following:

57. . . . Wife's equalization payment to Husband is
substantial.

58. Husband's marital separate property and Category 1
and 3 capital contribution credits far exceed the value of
the property that is being allocated between the parties.

. . . .

60. Wife is 57 years old and has been employed from time to
time at little over minimum wage over the years the parties
have been together. She needs further assistance to meet her
needs at the lifestyle she has been accustomed to during the
years the parties resided together.

61. Husband is 59 years old, has worked all his life, has
owned and operated several businesses, and has sufficient
assets to support himself very well for a number of years.

62. Husband's employability is much better than
Wife's.

63. Husband is entitled a substantial capital contribution
credit due of his Category 1 and 3 assets. Wife will be left
with comparably very nominal assets. Further, Husband has
substantial marital separate property he inherited from his
parents' estates.

64. The parties started their PEP in 1976 and have resided
together for about 34 years. This is a relatively long
relationship.

As to
spousal support, the family court made the following
findings:

68. The parties have lived together since 1976 and separated
in 2010. Over these approximate 34 years, they have enjoyed a
modest life style; raising children together, purchasing and
selling real property, operating several businesses, building
the marital residence, etc. Husband was the primary bread
winner. Although Wife worked from time to time, she remained
primarily a homemaker the majority of the time and generally
stayed at home to raise the parties' children and to
support the family. The children attended private school and
they are now adults.

69. When Wife was laid off from Parker School in 2009, she
began receiving unemployment benefits. In 2011 she found work
as a nanny and makes approximately $1, 600 gross a month.

70. Husband inherited over 3.5 million dollars from his
parents' estates resulting in the parties enjoying a
relatively higher standard of living. Wife enjoyed regular
therapy, massages, new clothing, and elective cosmetic dental
work. Husband enjoyed an expensive vintage car and multiple
trips to Southeast Asia. They built a modest home together.

71. Wife has received $2, 000 per month in court-ordered
temporary spousal support.

72. Wife is employable, albeit limited, because of her age.

73. After divorce, Wife will, however, need continued support
to pay for her health insurance and other medical expenses as
well as to assist her in other daily and monthly expenses.

74. Following the divorce, Wife will no longer have the
benefit of residing at the marital residence. She will now
need further financial assistance.

75. Husband currently spends about $12, 000 per month for
family support. He will now live at the marital residence.
His monthly expenses will go down.

76. It would be just and equitable to award Wife continued
spousal support for a period of five years commencing January
2012 (the month following trial), as follows: $2, 000 per
month until Wife moves out of the marital residence, then $3,
000 per month commencing the first month after Wife moves out
of the marital residence and through December 2017.

Later,
in response to Husband's motion for reconsideration, the
family court amended finding of fact No. 76 regarding spousal
support to reduce Wife's alimony award by one year.
[6]

As to
attorney's fees and costs, the family court concluded
that because of Husband's superior financial condition,
it would be just and equitable to award Wife a portion of her
attorney's fees and costs up to $5, 000. Wife's
counsel later submitted an itemized accounting of fees
incurred through preparation of the closing argument and
reply, reflecting ...

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